Procter & Gamble (NYSE: PG) this past week announced its first quarterly earnings report since beating back a shareholder challenge against its management team. The results showed steady progress toward P&G's sales and profit targets for the year despite tough industry conditions.
Thus, pressure was eased on the company to make big changes to its strategy in the wake of that proxy revolt.
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Here's how the big-picture results stacked up against the prior-year period:
Sales and profits
Organic sales growth came in at 1% to mark a slowdown from the prior quarter's 2% boost. That modest result would normally be a disappointment. However, it constitutes decent growth in today's selling environment. Peer Unilever recently posted a weaker organic expansion pace, and Kimberly-Clark announced declining sales at its last quarterly check-in.
P&G's overall results were powered by volume growth as pricing held steady. There was plenty of volatility within that big-picture figure, though. Sales gains were an impressive 5% in the beauty segment, for example, thanks to strong demand for SK-II branded products in China. On the other hand, the company endured a 6% slump in the grooming division as management sought to reinvigorate the Gillette shaving franchise through price cuts. The pricing changes didn't result in volume growth this quarter, but it's too early to tell whether they're working.
P&G's profitability took a slight step lower as aggressive cost cuts were overwhelmed by several negative trends, including increased costs related to disruption from the hurricanes that affected the U.S. during the quarter. Operating and gross profit margins both ticked down as a percentage of sales. Cash flow was strong, though, which helped the company fund over $4 billion of direct returns to shareholders through dividends and stock buybacks.
Management comments and outlook
Executives were pleased with the headline numbers. "First-quarter sales and earnings results were in line with our ... expectations and keep us on track to deliver our targets for the fiscal year," CEO David Taylor said in a press release. The figures were impressive, considering the weak state of the market for branded consumer products, they explained.
"We delivered organic sales growth in a decelerating global market and against a relatively strong base period," Taylor continued. Overall, management believes the growth trends are evidence that P&G is turning the tide on market share after losing ground in each of the past three fiscal years.
Taylor and his team affirmed all their full-year operating targets. They still see organic sales growth ranging from 2% to 3% for a slight acceleration over last year's 2% rise. Earnings should still grow by between 5% and 7%, despite an unexpected $100 million cost spike tied to recent hurricane activity.
P&G's steady profit outlook demonstrates that its targeted brand portfolio is delivering the higher-quality growth that management hoped it would. Sure, the company isn't posting strong organic growth right now. But its peers are struggling, too. Given the tough operating environment, investors should be encouraged that P&G's volume, pricing, and profitability trends are all headed in the right direction.
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